Hey everyone, I recall seeing many times some comments about how to make payments during the billing cycle in order to minimize the finance charge each month. However I cannot find any of the specific posts on the topic. So what is the best payment strategy for paying off a CC? Thanks
Hi, this is no rocket science. Most cards compute interest on the "average daily balance including new purchases". If you pay early in the billing cycle, the average daily balance for the billing cycle decreases, and consequently so deos the amount of interest you have to pay. And if you make multiple payments, make sure that the first payment is at least equal to the minimum amount; subsequent payments then directly decrease the principal balance on the card. All this assumes that you are carrying balance over from month to month. If you aren't, and regularly pay off your entire balance every month, then it's better to schedule your payments such that they hit the card on the exact due date. The theory is that you get the "float", where you retain use of your money for a longer period. But with banks quick to charge late payments and penalties these days even if you are ONE day late, such strategies are more risky than it's worth. I use BillPay to schedule my payment at least 4 business days prior to the stated due date for this reason, even though I pay off my card in full every month. -- lakpr
I travel a ton for work, and most of my previous lates were because I would just miss a bill in the barrage of mail. So, I worked out the following scheme: 1. For things that are not credit cards, I sign up for their bill payment service which deducts the money from either a credit card, debit card or my checking account on the due date. I use my AMEX for variable items, my checking account for essentials like gas/electric and my car loan, and my MC for truly luxury things like website subscriptions. If they can't handle automatic payment, I don't use them - with the exception of my natural gas bill since I kind of need to have heat. 2. I set up my three MC/Visa cards to have a payment made three days after my closing date. This way, I avoid late fees, avoid them telling me that I paid too early and missed a month, and can still decide later in the month how much extra to pay off. --- My 5.99% "balance transfer" sock-drawer card's payment is on a payback schedule for 12/2005. --- My Citibank Hilton Visa card gets used a lot for Hilton stays for work and McDonald's w/Speedpass, so I pay 10% of my credit line there. --- My other Mastercard is used for odds and ends and vacations and rarely has a balance of more than $500, so I pay $50 on that one. If it looks like my balance might go negative, I toss a tank of gas on that card. 3. On the first of the month, I pay my rent, my AMEX, and my gas bill. If I have any cash left over that month, or if I've gotten reimbursed from work, I make payments to the cards a second time, Visa first, then MC, then sock-drawer card. But since I already made a payment greater than the minimum, I can do this whenever I feel comfortable.
